Investing.com – The U.S. dollar traded lower on Thursday as a potential Federal Reserve rate cut appeared to be looming, while the euro fell lower ahead of the latest European Central Bank meeting.
At 04:15 ET (0915 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 103.220, near a one-month low.
Powell will continue to testify
The dollar fell lower Thursday at the start of Fed Chairman Powell’s two-day testimony before Congress as traders factored in U.S. interest rates set to fall this year even after some inflation surprises.
Fed Chairman Jerome Powell said Wednesday that rate cuts “will likely be appropriate” later this year “if the overall economy performs as expected” and once officials have greater confidence in a sustained slowdown in inflation.
Powell will appear before a Senate panel later Thursday after testifying before the House on Wednesday.
“In the past, Fed chairs have used stage two to correct any market overreaction to stage one,” ING analysts said in a note.
“However, we doubt that Chairman Powell has too much angst about the modest increase in risk presented by yesterday’s testimony, and he should deliver much the same message today. “The message remains that the Fed needs to be patient, but the game plan remains to cut rates later this year.”
Euro falls ahead of ECB meeting
In Europe, the index fell to 1.0895 after data released earlier on Thursday showed the fall in January was much worse than expected.
Orders fell 11.3% month on month, a sharp reversal from a revised 12.0% rise in December.
The meeting will take place later in the session, and interest rates are widely expected to remain at a record 4%.
“We expect further minor changes in communication from the European Central Bank… paving the way for a rate cut in June,” ING said. “However, recent macroeconomic data should have increased pressure on the ECB to act even earlier.”
Shares traded 0.1% higher at 1.2737, near a one-month high, after rising for a fifth month in a row in February, up 0.4% from January, according to mortgage lender Halifax.
The yen rose on speculation about rate hikes
In Asia, trade traded 0.9% lower at 147.97, with the yen rising amid growing speculation that the yen could end negative interest rates in the near future.
The conversation was sparked by BOJ board member Junko Nakagawa, who said the Japanese economy was well on track to meet the central bank’s 2% inflation target – a scenario that could trigger a rate hike by the BOJ.
The yen has weakened for much of the past two years as the Bank of Japan maintained its ultra-loose monetary stance while other major central banks aggressively raised interest rates to curb inflation.
rose to 7.1986, with the pair moving little despite China reporting stronger-than-expected growth in the first two months of 2024, while it strengthened and signaled some recovery in the country’s active trading business.
rose 0.4% to 0.6588, helped by positive and strong data from major trading partner China.